Define financial and service provisions within bus service operation contracts. There should be at least some degree of performance-based incentives. The tendering process should be transparent, and the aims, scope, eligibility of operators and contract duration should be established at the beginning.
Financial and service provisions consist of a number of items, depending on the contract type, which must be defined within the contract. Regarding quality, the contract is a key document to clarify the responsibilities of each party, while enabling all parties to express their expertise in their own field of competence. The monitoring made by the Public Transport Authority is essential for a successful outcome. The consequences of not performing according to contract must be clearly stipulated within the contract, e.g. reduction of bonus and penalties.
In the contract different criteria could be mentioned, e.g. quality and age of buses, passenger satisfaction and growth of passenger numbers. In the selection process, there is then a possibility to give different scores to each criterion.
A central part of a public transport contract is the duration. The contract length should primarily reflect the investment to be made. The duration may also affect the actors in different ways. With shorter contracts (e.g. one year), the market is stimulated until the next procurement and competition is maintained; however, this comes with high transaction costs. With longer contracts (e.g. more than five years), mutual development during the contract period is stimulated and operator investments and increased technical efficiency is supported. If the public transport authority handles investments and rolling stock, the periods can be made shorter. In Europe, commonly a contract length of between 5 and 8 years has been used. At present, the general trend is towards longer contracts. The EU Regulation 1370/2007 states that the upper limit should be 10 years for bus transport.
The qualification of the contract is important. It determines the applicable EU legislation, e.g. Regulation 1370/2007, Directive 2004/17/EC (coordinating the procurement procedures) and Directive 2005/51/EC (public procurement)
The aim of the tendering process may vary. Depending on the aims and goals of the Public Transport Authority, the tendering may be oriented towards the cost side, i.e. based on price with fixed quality, or towards the output side, i.e. based on quality.
Performance-based incentives should be used. An incentive agreement gives the operators the possibility of developing the service within the framework of the current contract, e.g. it can let the operator keep part of the revenues from an increase in the number of trips and let passenger satisfaction influence the bonus. Thus, the operator’s motivation is strengthened, and it takes over the responsibility for planning, marketing, and information. From PROCEED’s case study analysis can be seen that 37 % of the cities with tendered service have a bonus / incentive regulation in the contract.
The whole idea of operator tendering is slightly challenged, when considering that contract lengths between 5 and 8 years do not fit vehicle depreciation life. This issue is sometimes dealt with by letting the public transport authority be the owner of both vehicle and garage infrastructure, reducing the operator to a company with a temporary work force.
The general trend towards longer duration of contractscan imply ‘too close’ relations between operator and the public transport authority, and an unfair market situation and a tendency towards monopoly.
It is important that whereperformance-based incentive provisionsare included in the contract they can be monitored. The European standard EN 13816:2002 provides methods for monitoring performance (see guideline 1.4 Monitoring of performance).
Regarding incentive schemes (for all regimes and contracts), it is crucial that the contract contains a mutual responsibility for both the operator and the public transport authority. The authority must commit to all the measures necessary to ensure appropriate framework conditions for public transport. If not, then the operator's ability to benefit from an incentive contract is substantially reduced.
Almere (The Netherlands): The tendering process has been very stimulating for the market. The contract comprises severe bonus / penalty agreements, related to the targeted increase in the number of passengers.
Cherbourg (France): The operator has agreed a target of increasing bus use by 20% and fare box revenue by 23% by 2013, and the public authority payment to the operator in the contract is based on achieving these targets. In the event of the targets not being met, the operator takes the financial risk by making up the shortfall in funding.
Gävle (Sweden): An incentive agreement gave the operators the opportunity of developing the service within the framework of the current contract, i.e. the operator keeps part of revenues from an increase in the number of trips. Thus, the motivation from the operator's part was strengthened, taking over the responsibility for planning, marketing, and information. Another success factor has been the active way in which the parties (Public Transport Authority, X-trafik, operator Swebus and municipality Gävle) co-operate in regular meetings and a common steering document with aims, strategies and measures.
Groningen (The Netherlands): The Public Transport Authority has chosen to make a very detailed tender and contract on all aspects of the Public Transport service to be provided by the operator. This guaranteed that the Authority got the Public Transport service it wanted, being less dependent on what the bidding operators were going to offer. The main selection criteria were the fulfilment of the specifications and price. Because the Public Transport Authority determines the services to be provided in detail, they also take the revenue risks.
Helsingborg (Sweden): Since 2003 Helsingborg has had a three part co-operation between the City, the operator and the Public Transport Authority. This co-operation includes an incentive contract with the operator. The incentive contract is based on customer satisfaction within various areas like punctuality, clean vehicles, reception of staff, etc. but also increased number of passengers. Within the three part co-operation a number of other measures have been taken such as investments in bus-lanes and new vehicles but also great efforts by the operator, educating and having events for the staff. The co-operation has been a success and the number of passengers has increased by 40% since 2003 when the new contract started.
Toledo (Spain): Financing public transport in Toledo by the local administration is based on subsidies calculated according to the costs/km, the occupation and the fare conditions. The contract is based on a fixed income of 2,1026 € per bus km without an agreement on bonuses.